Robert Steel's deal to sell Wachovia Corp.'s banking business to Citigroup Inc. a week ago may have given the Charlotte company's chief executive the confidence and the breathing room he needed to turn around days later and sign a competing deal to sell his entire company to Wells Fargo & Co., analysts say.

Whether intentional or not, analysts speculate that when Citi announced its plan to take over Wachovia's banking business, with support from the Federal Deposit Insurance Corp., on Sept. 25, the mere announcement bolstered customer confidence, helping to minimize the likelihood of a run on deposits at the faltering company.

And since that deal still needed shareholder approval, it also gave Mr. Steel time to negotiate a better deal with Wells' executives, who, like their counterparts at Citi, had spent the previous weekend poring over Wachovia's books.

However it came about, for Wachovia shareholders as well as for taxpayers, Wells' offer is superior, and Citi likely will end up falling well behind its large-cap competitors in retail deposits.

"I would guess that the Citi deal got imposed upon them, and Steel did not accept that fact that this was the last option," Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP.

Citi found out about Wells' stunning $15.1 billion stock deal for all of Wachovia at around 2 a.m. Friday. That was four days after Citi had agreed to buy Wachovia's banking operations and most of its other assets for $2.16 billion of stock and the assumption of $53 billion of debt — along with an arrangement with the FDIC for taxpayers to cover billions of expected loan losses at Wachovia.

Even with the ever-shifting financial landscape, Friday's deal announcement left veteran Wall Street analysts reeling.

Citi's managers also appeared to be caught off guard by the sudden change in events. The New York company declined several interview requests Friday, but in a press release it described Wachovia's agreement with Wells as a "clear breach of an exclusivity agreement between Citi and Wachovia" and said Friday's deal "constitutes tortious interference."

A source close to Citi said Friday that it was meeting with Wachovia executives in New York on Thursday working on an integration plan.

"This wasn't a deal done on a handshake. There is a written agreement. There are no outs," the source said.

Citi expects Wachovia executives "to come to their senses and reconsider," the source said; if they don't, legal action is an option.

Nancy Bush, the president of NAB Research LLC, said in an interview Friday: "Stunned doesn't even start to explain my reaction. But there's no way shareholders are going go for Citi when there's a much better Wells Fargo offer in front of them.

"And the FDIC has to put a good face on this, say it backs Citi, but in the end it's going to be Wells that gets this, because it doesn't cost the government anything," she said.

Andrew Senchak, vice chairman and co-head of corporate finance at KBW Inc.'s Keefe, Bruyette & Woods Inc., blamed Citi for letting its deal get away.

"I think Citi blundered, frankly. This was really bad."

Lawyers said Citi might be able to push for compensation of some kind from Wells, probably through an out-of-court settlement, but it would be much more difficult to win a court battle.

"To flee from the altar like this is probably about as serious a violation as you can make to an agreement, so I would assume that Citi is in fact very serious about litigation," Patricia McCoy, a law professor at the University of Connecticut, said in an interview Friday.

Wachovia's board cannot ignore the Wells offer, she said, because it would mean dismissing its fiduciary responsibility to get the best sale terms for shareholders.

A source close to Wachovia said Friday that it does not think it is bound to the exclusivity agreement, because it was pushed into the arrangement with Citi by the FDIC.

"There are various questions as to whether, given the very peculiar circumstances where this was entered into and carried out, it is binding at all," the source said. (See related story.)

During a conference call he hosted jointly with Wells executives Friday, Mr. Steel refused to discuss his arrangement with Citi. In an e-mail to employees, he said he expected the deal with Citi to close this year. "This transaction creates a true powerhouse in our industry," he wrote.

Wells executives said they are not concerned regulators will interfere.

In fact, a regulatory change looks as though it will help Wells pull the deal off. In its presentation Wells said it had asked regulators for 24-month extension of deferred tax asset limits, which would allow it to treat Wachovia's net operating losses as an asset when calculating capital.

A Fed spokesman refused to answer questions about the matter Friday, but the Internal Revenue Service did issue a notice Tuesday lifting restrictions on losses related to bad debt deductions that could be written off after a change in a bank's management.

A knowledgeable source said the IRS, a division of the Treasury Department, was talked into the change by Treasury officials last week. Mr. Steel, until he took the Wachovia job in July, was Treasury under secretary for domestic finance. Asked about it Friday, Wachovia said in a statement: "To the best of our knowledge, Wachovia was not involved with the IRS rule change."

Standard & Poor's Corp. said Friday that it had put all its long-term ratings for Wells on its Credit Watch list with negative implications.

John Stumpf, Wells' CEO, called his San Francisco company's deal "solid" on a conference call with investors Friday.

"We are not aware of any merger agreements that had been consummated at the time" Wells made its bid for Wachovia, he said. "And as far as other issues, I haven't seen anything in terms of issues that Citi has or doesn't have. We feel very confident that this transaction has been done appropriately and will continue and be consummated, and we will go forward with it."

This is not the first time Wachovia has been involved in a three-way deal battle, though the last time it was the company that crashed someone else's party.

Flashback to 2001. The old Wachovia had been talking to SunTrust Banks Inc. in Atlanta but pulled back when First Union Corp. of Charlotte got involved. It bid for Wachovia, won, and eventually took that name to become the company it is today. That fight resulted in litigation and accusations by SunTrust that it had been misled during the process.

Should Wells win out and seal its deal — valued at $7 a share — it would raise $20 billion, mainly through common stock, to help absorb Wachovia's debt and more than $70 billion of its expected loan losses.

The deal would not be accretive until year three, Mr. Stumpf said, but Wells would instantly become a "deposit dynamo." (See related chart.)

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